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The Auditors exposes corporate ‘fraud’ and the role of the ‘Big 4’

The Auditors exposes corporate ‘fraud’ and the role of the ‘Big 4’
September 15, 2020
September 15, 2020 September 15, 2020

MUFTI MUHAMMAD HAFFEJEE, finance desk manager at Jamiatul Ulama South Africa, reviews a damning report which exposes the duplicity of large financial advisory institutions.

IF you’ve always wanted to be an ­accountant but fortune found you ­elsewhere, and you are now trying to live your dream through an aspirant youth grappling to identify a career path then The Auditors is a report to peruse before personal despair and providing career ­advice.

Published by Open Secrets with funding from, among others, the South African office of the Heinrich Boll Foundation, the Joffe Charitable Trust, Luminate, Open Society Foundation’s Human Rights Initiative, the Open Society Foundation for South Africa and a few private donors, the fact-filled report pulls no punches in calling out duplicity of large financial advisory institutions.

Released in June 2020, researchers Michael Marchant and Mamello Mosiana, in 86 pages, provide an in-depth and chronological account of corporate fraud at the helm of the big four accounting firms i.e. Deloitte, PWC, KPMG and Ernst & Young in South Africa alone.

To be fair to the four, regulatory bodies such as South Africa’s Independent Regulatory Board for Auditors (IRBA) and the South African Institute of Chartered Accountants (SAICA) aren’t spared any grace.

Against the backdrop of massive inequality in South Africa, the report brings to the fore that despite the big four enjoying combined revenue of $134 billion in 2017 and employing one million people in roughly 3 000 global offices, they have, rather paradoxically, had a hand in exacerbating inequality.

Thus, while the real income of the bottom 10 per cent of South African earners fell by 25 per cent between 2011 and 2015, earnings of the top one per cent went up by 48 per cent.

The report traces the evolution of large accounting firms as we know them today from the first industrial revolution in the 19th century to the 1980s, which saw a resurgence of free-market ideologues like Margaret Thatcher and Ronald Reagan, whose reign paved the way for increased financialisation of economies.

Consequently, this created room for the existence of accounting firms to provide not only auditing services but also consulting in financial risk management and tax advice.

Familiar to the public as just auditors, the report asserts that these firms derive more revenue from consulting services rather than auditing itself.

Clients comprise multinational corporations, and even governments, while consulting relates to ‘efficient’ resource management using secrecy jurisdictions that are geared towards avoiding tax and transparency requirements.

This is successfully achieved by the firms being firmly embedded in policy making structures at government level coupled with consulting multinationals and governments on the adoption of the very same policies.

Thus, while we know them to be located in our home countries, they are also well established in tax havens, like the British Virgin Islands, the Cayman Islands, Mauritius and Luxembourg.

The significance of this report is realised by the human cost of fraud and conflict of interest issues at the helm of these accounting and auditing firms.

Losses in tax revenue undermine elected governments, constrain state spending on social development and essential services, and deprive people of jobs as well as access to essential services of healthcare, education and pensions.

Despite this, the work of accounting and auditing firms is cloaked in the ‘language of legitimacy’ i.e. tax minimisation, tax neutrality etc.

Put crudely, these obscure words mean no tax!

The refrain ‘too big to fail’, coined after bailouts of a select few corporations during the 2008 financial crisis, is adequately wordsmithed in the report in the context of accounting firms as ‘too few to fail, too powerful to jail’.

Thus, despite South Africa’s Independent Regulatory Board for Auditors (IRBA) introducing mandatory rotation for public companies in 2016, this will only come into effect in 2023.

With so few firms, also known as ‘foxes guarding hen houses’, there remains little hope of this requirement achieving the desired objective.

Volume one in the series of Corporations and Economic Crime Report (CECR), The Enablers examined the role of bankers, lawyers, accountants and consultants in enabling state capture, was submitted to the Zondo Commission of Inquiry in February 2020.

This time, The Auditors reinforces the notion that as long as governments continue to fail their people, the citizenry will forever feel justified to evade tax, thereby validating the existence of large financial advisory firms to continue with business as usual.

In the end, the United Nation’s SDG 10 of narrowing inequality by 2030 will remain mere words in socio-economic parlance and a pipe dream in the hearts and minds of policy makers.

Featured image: Governments lose billions in tax revenue as multinational consulting firms advise corporate clients to seek tax havens in offshore accounts. The role of these consulting companies is exposed in a report about the duplicity of large financial advisory institutions. (Graphic ELNUR AMIKISHIYEV/ 123RF.COM)

This article was first published in the August 2020 print edition of Muslim Views.

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